Malaysian palm oil prices to rise 9 pct by Feb 2014 -analyst Fry

Reuters

By Rajendra Jadhav and Siddesh Mayenkar

MUMBAI, Sept 21 (Reuters) - Malaysian crude palm oil (CPO)prices are likely to rise nearly 9 percent to 2,500 ringgit pertonne by February 2014 from current levels as inventories in topproducer Indonesia are set to fall after it decided to promotebiodiesel consumption, a top industry analyst said on Saturday.

"Export taxes reinforce the appeal of turning crude palm oil(CPO) into biofuel for local use inside Indonesia and Malaysia,"James Fry, chairman of commodities consultancy LMCInternational, told the Globoil India conference in Mumbai, thefinancial capital.

"Today, Indonesian CPO is $105 (per tonne) cheaper thancrude oil. Local Malaysian CPO is $75 cheaper than crude oil."

The forecast by the London-based analyst assumes that theprice of Brent crude remains at $110 to $115 per barreluntil February. Brent is now around $109 per barrel.

Fry added that the premium of soyoil over rival crude palmoil was likely to fall by $70 per tonne to $130 per tonne byFebruary 2014.

Vegetable oil prices benefit from higher crude prices, whichmake it more economically attractive to use the edible oils inbiofuel, seen as a greener alternative to petrol and diesel.

On Friday, benchmark palm oil futures on the BursaMalaysia Derivatives Exchange had lost 0.9 percent to close at2,297 ringgit ($725) per tonne, bringing prices down 6 percentso far in 2013, after a plunge of 23 percent in 2012.

Fry expects palm oil inventory in Indonesia to come down to1.8 million tonnes by February, despite peak production in thenext few months, as the country has raised the mandatory amountof biodiesel used in diesel to 10 percent from 7.5 percent.

Stocks in Indonesia are around 2.1 million tonnes now, DeromBangun, chairman of the Indonesian Palm Oil Board, said onFriday.

Indonesia has faced sell-offs in its rupiah currencydue to an unexpectedly large second-quarter current-accountdeficit. To contain the deficit, the country it trying to limitimports of energy products.

CPO consumption of palm oil in Indonesia is likely to riseto 9 million tonnes in 2014 from an estimated 8.5 million in2013, Bangun said.

"There is no doubt that fuel use of palm oil (without anyofficial subsidies) is often profitable in Southeast Asia," hesaid.

"Biofuels in Southeast Asia are defending the CPO pricefloor ... we have a new factor, Indonesia's large increase to a10 percent biodiesel mandate, from next January."

Malaysian palm oil stocks are 21 percent down from a yearago, partly due to weak annual output growth, Bangun said.

Although crude palm oil output would peak by November asusual, he added, stocks would not be as much as last year, andSoutheast Asian biodiesel demand would soar from next January. (Reporting by Rajendra Jadhav; Editing by Jo Winterbottom andClarence Fernandez)

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